Professor Joe Nellis is economic adviser at MHA, the accountancy and advisory firm.
Eurozone inflation edged up to 2.2% in November, a slight rise from the 2.1% recorded in October. The headline number continues to hover close to the European Central Bank’s 2% target, but the underlying picture remains uneven.
For the wider eurozone economy, today’s data suggests that the disinflation trend is intact but still fragile. Growth across the bloc remains modest, with forecasts for next year centred near 1.2%. This combination — cool inflation but weak activity — places the ECB in a delicate position. Policymakers may feel more comfortable that inflation is bending in the right direction, yet the persistence of services-led price pressure makes a toward aggressive rate cuts unlikely.
The ECB will not cut when they meet for a final time this year in December, and it would be a surprise if they cut again at all. Interest rates of 2% are already low and in the current economic climate we are unlikely to see central banks in the western economies move much lower.
For Cyprus, this offers a predictable backdrop for businesses, with easing goods and energy costs helping manage input pressures. However, rising wages and cautious consumer demand remain challenges, particularly in tourism and retail. Households are seeing real incomes stabilize, yet living costs remain elevated compared to pre-2021 norms. On the investment side, continued monetary stability supports foreign direct investment (FDI) flows into Cyprus, especially in real estate and fintech, where investor appetite remains strong despite global uncertainty. Overall, growth prospects are modest, supported by tourism and professional services, but external trade headwinds and subdued spending will persist.
Savvas Klitou, Regional Managing Partner, Head of Tax Services, Baker Tilly
Businesses across the single market will take some encouragement from continued low inflation. Lower goods and energy-related inflation reduces input-cost volatility, helping firms rebuild margins and plan investment with a little more confidence. However, higher wage costs and subdued consumer demand continue to weigh on sentiment, especially in sectors sensitive to domestic spending or international trade.
For households, the picture is cautiously positive. Price rises are no longer eroding purchasing power at the pace seen during the inflation peak, and real incomes are beginning to stabilise.
Nevertheless, living costs remain high compared with pre-2021 norms, with services such as housing, healthcare and leisure still putting pressure on family budgets.
Professor Joe Nellis is economic adviser at MHA
